Abstract
Prior literature provides conflicting evidence about the impact of speculation
on gold futures returns, volatility, and the relationship between market fundamentals
and prices. In this paper, we exploit trade volume information to
determine the most appropriate family of factors to adopt when modelling
gold futures. Using the Disaggregated Commitment of Traders report, we
find that extreme levels of speculation are informative in that they signify a
shift in the relative modelling accuracy of macroeconomic and latent factors.
A simple composite prediction framework, incorporating the changing level
of speculation, empirically demonstrates the uncovered phenomenon and offers
improved predictive accuracy for gold futures prices. Furthermore, our
findings are shown to be robust to alternative latent and macroeconomic
model specifications.
Original language | English |
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Pages (from-to) | 966-977 |
Number of pages | 12 |
Journal | European Journal of Finance |
Volume | 25 |
Issue number | 10 |
Early online date | 17 Dec 2018 |
DOIs | |
Publication status | Early online date - 17 Dec 2018 |
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Profiles
-
Fearghal Kearney
- Queen's Management School - Senior Lecturer
- Finance
- Institute of Electronics, Communications & Information Technology
Person: Academic